- We expect the Bank of England to remain on hold at Thursday's Monetary Policy Committee (MPC) meeting and believe the Bank of England (BoE) will remain in wait-and-see mode going forward.
- As this is in line with consensus, we expect a muted market reaction following the MPC's decision.
On Wednesday, the members of the MPC will gather for their monthly two-day meeting to set BoE policy. As the BoE last week announced that it had reached the current target for bond buying, now holding 34% of total outstanding gilts, all eyes are on this month’s MPC decision. The big question is what the MPC will do as the July increase of GBP 50bn of the APF has reached the limit. We will have the answer at 13:00 CET on Thursday.
The split within the MPC has been clear, as the minutes from the October meeting revealed: "Some members felt that there was still considerable scope for asset purchases to provide further stimulus. Other members...questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy at the present juncture."
Recent communications from MPC members have added more colour to the discussion from the October Minutes. David Miles has expressed concerns about the weak growth and expressed views consistently with his previous dovish stance. This view is opposed by, for example, Marvin Whale and his concerns that inflation expectations could rise with the apparent stickiness of inflation. Variations of this view, together with questions of further effectiveness of additional QE, have also been raised by BoE Deputy Governor Charles Bean and BoE Chief Economist Spencer Dale (both MPC members).
Furthermore, governor Mervyn King said in a speech two weeks ago that the MPC’s next policy decision hangs in the balance: ‘MPC will think long and hard before it decides whether or not to make further asset purchases’. But in his speech he seemed to take the stand, that MPC would do more QE only if things got even worse than the current situation: but ‘should those signs [referring to positive signs such as labour market job creation, falling inflation and strong retail sales] fade, the MPC does stand ready to inject more money into the economy’.
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